Number of bankruptcy filings in the US have been on a decline since the year 2000, when one out of every 55 households filed for bankruptcy. The following year, bankruptcy filings fell to about 600,000, the lowest point in 20 years. The vast majority of bankruptcies are now filed by consumers and not by companies. A study conducted on medical bankruptcies revealed that nearly 59% of those surveyed cited medical expenses as an important factor in filing for bankruptcy.
At the same time, 44% mentioned medical problems that had led to the loss of work, further demonstrating how these problems are intertwined. When banks' credit requirements are lax, such as when they were entering the housing bubble of the mid-2000s, borrowers can easily get down to business. Just over 44% of the people who participated in the medical bankruptcy study admitted that overspending or living beyond their means was a contributing factor to their bankruptcies. Of course, overspending can mean a wide range of things, from running out of your credit card limits on regular purchases to slightly exceeding your family's food budget here and there.
It's not just a person's own financial difficulties that can lead to bankruptcy. Sometimes, the need to provide assistance to family members or others can also be a factor, as indicated by 28% of those surveyed in the study on medical bankruptcy. Economists say that some don't file their applications because collectors don't aggressively pursue them, while others may strategically delay filing because bankruptcy could benefit them more in the future. Households, approximately 17 million, owe more than they own, according to estimates by the Federal Reserve Bank of New York.
Many of these households could benefit from the cancellation of their debts, but less than 1% of US households file for bankruptcy every year. Last year, there were 752,160 personal bankruptcy filings. Researchers refer to this gap as “lack of bankruptcies” requests that could be happening, but aren't happening. The reduction in unemployment benefits, along with the reopening of the courts and the persistence of high unemployment, mean that the pause in bankruptcy filings is likely to be temporary. When it comes to filing for bankruptcy protection, many people fear losing cars, houses and other properties. However, they are pleasantly surprised that they haven't been stripped of everything they own as the vast majority of people who file for Chapter 7 bankruptcy don't have to give up any of their possessions.
The types and amount of assets you can keep vary by state. If you have assets that wouldn't be protected under Chapter 7, you can apply for a Chapter 13 payment plan instead. A bankruptcy statement stays on your credit reports for up to 10 years. However, credit scores may begin to recover soon after you submit your application. It is possible to get a mortgage from the VA or FHA two years after the bankruptcy and most loans require you to wait at least four years. People can start rebuilding their credit a few months after their bankruptcy case has been filed using secured credit cards or loans available at some credit unions and community banks. Debt often causes anxiety and depression making it difficult to take action.
However, misplaced optimism can also be a problem as many people postpone filing for bankruptcy due to hope that things will get better soon. Anyone struggling with debt now should consider consulting a bankruptcy lawyer as it could help them avoid costly mistakes if they later decide that this is their best option. The mystery isn't why so many people file for bankruptcy every year but why so few do it when it could benefit them economically. Medical bills are reportedly the number one cause in the US with studies stating that 62.1% of bankruptcies were due to medical problems and more than two million people being adversely affected by their medical expenses.
